EXPD Expeditors International of Washington Inc

The European Union (EU) commission’s antitrust regulators have charged $225 million as fine on 14 international freight forwarding companies including United Parcel Service, Inc. (UPS) and Expeditors International of Washington Inc. (EXPD) for perusing price fixing activities for freight transactions in Europe.

According to investigation under the EU commission antitrust department, these logistic companies were involved in four cartel activities, fixing air freight prices between 2002 and 2007. Expeditors was one of the alleged companies that took part in a cartel arrangement called “Peak Season Surcharge” that involved fixing price for shipments exchanged between China, Hong Kong and Europe in the fall and winter seasons.

Cartel activities that are undertaken through the collusion of various groups of people or companies involves fixing of any underlying factor that influences market behavior, such as price or production, in order to reduce competition and derive maximum benefit from consumers. This malpractice has been a problem in Europe since 1880, when it first took place in Germany. There are various types of cartel such as price fixing, customer allocation and marketing, of which the most common is price fixing.

Article 81 of EU's competition law strictly prohibits cartel activity related to price and production of goods. In the U.S., such activities fall under the Sherman Antitrust Act of 1890 and are considered as federal crimes.

Given the current economic uncertainty, we believe EU’s investigation will bring about some positive changes in terms of freight pricing practices that will benefit the end users. At the same time, we believe that the charges against these 14 companies would also alert the industry, which has so long enjoyed the benefits of pricing discretion.

Over the past quarter, companies like Expeditors and UPS have mostly gained through higher pricing that offset most of their volume losses.

Currently, we maintain our long-term Neutral recommendation on Expeditors and UPS. For the short term (1-3 months), Expeditors holds a Zacks #3 Rank (Hold) and United Parcel has a Zacks #2 Rank (Buy).

 
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